Construction Contract
A contract governing the construction, alteration, repair, or improvement of real property. Texas construction contracts are subject to the Anti-Indemnity Act (Tex. Ins. Code Ch. 151), the mechanic's lien statute (Tex. Prop. Code Ch. 53), the Prompt Payment Act (Tex. Prop. Code Ch. 28), and a substantial body of project-delivery case law.
A construction contract is a contract governing the construction, alteration, repair, or improvement of real property. Texas construction law layers multiple statutory schemes onto private contract, the Anti-Indemnity Act, the mechanic's lien statute, the Prompt Payment Act, and various project-delivery method regulations, that materially affect what parties can and cannot agree to. Industry-standard form contracts (AIA, ConsensusDocs) are commonly used but require Texas-specific modifications to comply with these statutory overlays.
Project-delivery methods
Common Texas commercial delivery methods include: (1) design-bid-build, owner contracts separately with designer and contractor; lowest-bid award typical; (2) design-build, single entity provides both design and construction; (3) construction manager at-risk (CMAR), CM provides preconstruction services and then takes price risk via guaranteed maximum price; (4) integrated project delivery (IPD), multi-party agreements integrating owner, designer, and contractor; (5) job-order contracting, common on public projects for repetitive work. Each method has distinct contract structures and risk-allocation patterns.
Pricing structures
Standard pricing approaches: (1) lump sum / stipulated price, fixed price for defined scope; risk on contractor; (2) cost-plus-fee, owner reimburses actual costs plus a defined fee; risk on owner; (3) guaranteed maximum price (GMP), cost-plus with a ceiling; shared risk above GMP, often with savings-sharing below; (4) unit price, payment by quantity of work installed; (5) time-and-materials, most commonly used for emergency or change-order work, not whole projects.
Texas-specific compliance overlays
Texas construction contracts must reckon with: (1) the TAIA voiding broad-form indemnity that protects the indemnitee from its own fault; (2) the mechanic's lien framework requiring statutory notice and lien-filing procedures (post-HB 2237 amendments for contracts entered after January 1, 2022); (3) Prompt Payment Act mandates of 35-day owner-to-prime payment and 7-day prime-to-sub payment, with 1.5%/month interest for late payment; (4) statutes of repose limiting design and construction-defect claims to 10 years; and (5) special rules for residential construction under the Property Code.
Common disputes
Recurring construction disputes in Texas include: (1) scope of work and change-order disputes; (2) delay claims and concurrent-delay analysis; (3) defective work claims; (4) payment claims (often invoking lien rights and Prompt Payment Act); (5) differing site conditions; (6) liquidated damages for late completion; (7) termination for convenience vs. termination for default. Forum and venue selection matter greatly given the launch of the Texas Business Court (effective September 1, 2024), many sophisticated commercial construction disputes meeting the threshold may now be litigated in that specialized forum.
For Texas owners and contractors, the construction contract is the single most important risk-management document on a project. AIA and ConsensusDocs forms provide a sophisticated starting point but require Texas-specific edits, particularly to indemnification (TAIA compliance), payment timing (Prompt Payment Act), and lien-related provisions. Form-only execution without legal review is a frequent driver of downstream disputes, particularly on projects above $500K where the cost of customization is small relative to the dispute exposure.
Full entry: Construction Contract